Battle for funds always raging

Battle for funds always raging

7th May, 2012

James Chessell
The Australian Financial Review

Leading business figures have called on the federal government to increase funding for independent medical research, arguing that the sector provides a significant economic benefit.

Medical funding became a political issue in the lead-up to last year’s budget when speculation emerged that federal Labor was considering cuts to the National Health and Medical Research Council annual funding of $750 million.

There are no suggestions there will be cuts this week but the chairmen of four leading research institutes have urged the government to increase funding despite pressure to maintain tight federal budgets.

“Australia is a high-cost country so we have got to be in the high value end of industrial and manufacturing undertakings,” said Qantas chairman Leigh Clifford, who is chairman of the Murdoch Children’s Research Institute in Melbourne. “I’m always nervous about picking winners but Australia has a significant strength – and I’m careful not to say advantage – with medical research.”

Australian scientists have a strong history of coming up with medical discoveries that have been commercialised by companies such as CSL, Cochlear and Biota. The chairmen also argue that the preventative aspects of medical research increases productivity when overall health costs are rising.

“Most commercial application by companies such a Cochlear and CSL came out of research funded by the NHMRC. [CSL’s cervical cancer drug] Gardasil was an NHMRC project funded many years ago and is now one of the world’s leading drugs,” said Goldman Sachs banker Alastair Lucas, who chairs the Burnet Institute.

“The cost of health care for an ageing population is getting higher in ­dollar terms and percentage terms,” said UBS Australia vice-chairman of investment banking Peter Scott, who is chairman of research institute Baker IDI. “Sadly the need for public philanthropy to make up the difference is getting bigger.”

Australia has a proud history of medical research but when funding cuts are on the agenda the sector knows it has to protect its work from the scalpel, writes James Chessell.

As Steven Lowy puts it, the medical research community in Australia is not known for its lobbying firepower.

“But it got its act together last year for good effect,” he says. “It showed that people do not regard medical research as an unnecessary expense. It show the community regards it as very, very important.”

The Westfield Group co-chief executive is talking about the successful campaign against feared cuts to the National Health and Medical Research Council funding in the lead-up to last year’s federal budget. The NHMRC is the primary source of funding for independent research bodies such as the Victor Chang Cardiac Research Institute. Lowy chairs the institute, which had a budget of $754.7 million to spend on peer-reviewed grants in 2011.

This time around, the Gillard government is expected to once again leave the NHMRC alone in the budget. The campaign against the rumoured cuts last year struck a surprisingly populist chord and it is understood several institutes have been assured funding will be maintained.

Nevertheless, the debate over what is an appropriate level of medical research funding continues. In late 2011, the minister for health and aging, Mark Butler, announced then Australian of the Year Simon McKeon would chair a review of health and medical research, and recently took delivery of more than 300 submissions. The Australian Financial Review spoke to the chairmen of four leading independent research bodies in the lead up to this week’s budget. All agree that more could be done.

“We keep hearing we have to be the smart country,” says UBS banker Peter Scott, chairman elect of the Baker IDI institute in Melbourne. “Our competitive advantage will never be through our labour costs which will hopefully never be as low as developing countries. It has to be because we are smart. I think you only need to look around to see the Americans understand that.”

Federal spending on health and medical research equates to about 0.1 per cent of GDP. This is about a third of spending in the United States on a per capita basis. This country also lags the United Kingdom, whose governments resisted the temptation to cut research funding despite serious budget challenges. These are statistics that are quoted by all four chairman. They also form part of the Association of Australian Medical Research Institute’s submission to the McKeon review, which calls for greater funding of the NHMRC.

“Australia is a high cost country so we have got to be in the high value end of industrial and manufacturing undertakings,” says Qantas chairman Leigh Clifford, who chairs the Murdoch Children’s Research Institute in Melbourne. “I’m always nervous about picking winners but Australia has a significant strength – and I’m careful not to say advantage – with medical research.”

Not surprisingly, given their background in business, the chairmen are keen to point out the economic benefits of medical research. Australia has a proud history in this sector. Many of the discoveries successfully commercialised by Australian health and biotech companies came from publicly funded research, including CSL’s Gardasil cervical cancer vaccine and Biota’s anti-influenza drug Relenza. The work done by Professor Graeme Clark and his team at the University of Melbourne in the 1970s that led to Cochlear’s bionic ear was supported by 17 grants from the NHMRC as well the Australian Research Council.

“There are few things the government can do to aide the economy that are more beneficial than medical research,” says Goldman Sachs banker Alastair Lucas, who chairs the Burnet Institute. Lucas is quick to acknowledge the connection between the commercial world and research institutes, noting Burnet is working on a vaccine for hepatitis C in a partnership with CSL. Nevetheless, he argues there are times when a research project is too small to attract commercial interest.

“I’m not about the government picking winners but there is a good case for the government to get involved,” he says. “The big drug companies will not spend money on basic research because it is too risky.”

Each of the chairman argues there are structural challenges that can make funding difficult.

While the NHMRC is widely-respected, it could be argued that is overwhelmed with the number of applications it receives each year. It received 3737 applications for project grants in 2012 – up 7 per cent on the previous year. By comparison, in 2010-2011 the UK’s Medical Research Council received 1377 applications for projects and programs.

NHMRC grants go towards research but there are additional costs associated with facilities and infrastructure that must be covered by a mixture of state funding and private philanthropy. Scott and Lowy estimate that for every dollar awarded in grants the institutes must come up with an additional 60¢ to cover operational costs. It is difficult to quantify but most observers in the medical research community believe support from state governments for these infrastructure costs has fallen in real terms.

“There is fundamentally a structural problem that when you do get funds from the NHMRC it doesn’t cover any on-costs meaning the cost of a building, lights, electricity,” says Lowy. “The better researchers you have, the better they are able to compete for peer review grants – these are seriously competitive grants – the more funding you attract from NHMRC the bigger your structural gap. Therefore the bigger the reliance on private philanthropy.”

Studies show that Australian are less likely to contribute to medical research than Americans. Lowy argues that more government funding will actually increase the amount of private donations. The Irish-American billionaire Chuck Feeney has donated roughly $500 million to Australian research by matching his grants to government funds in a bid to leverage his investment. It has been an approach adopted by News Corporation executive chairman Rupert Murdoch and his family who have agreed to give Clifford $10 million for the Children’s institute provided it is matched by public money. Clifford is currently lobbying the Victorian government.

“I met with Rupert when I was in New York about 18 moths ago and he asked ‘do you really think you can make a difference’,” says Clifford, who sealed the deal by getting Murdoch in front of four of the institute’s researchers during a recent visit.

Another measure proposed by the institutes in their submission to the McKeon Review was to increase private donations through a tax effective philanthropic trust seeded by a $50 million contribution from the government.

Copyright 2012. Fairfax Media Management Pty Limited.

(Note, the research budget figure quoted for the Victor Chang Cardiac Research Institute in this article is incorrect.)